2012 (7) TMI 665 - HC - Income Tax

Addition made on account of unexplained share application money - Tribunal remitted the issue on account of unexplained share application money to AO to verify the source of money of the shareholders and make additions in the hands of persons who provided the monies - Held that - It is unable to uphold the view of the Tribunal that it is incumbent upon the AO to establish with the help of material on record that the share monies had come or emanated from the assessee‟s coffers. Section 68 of the Act casts no such burden upon the Assessing Officer. The Tribunal, however, may be justified in directing the AO to afford an opportunity to the assessee of cross-examining the persons who had allegedly given statements before the Investigation Wing implicating the assessee in the modus operandi adopted by them, namely, giving of accommodation entries for commission - The assessee appears to have sought cross-examination of those persons but that opportunity was not given by the Assessing Officer as found by the Tribunal - in favour of the Revenue

Issues Involved:
1. Jurisdiction of the Assessing Officer to reopen the assessment.
2. Addition of Rs.2,20,00,000/- as unexplained share application money.
3. Addition of Rs.4,40,000/- as commission paid for obtaining accommodation entries.
4. Burden of proof under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Reopen the Assessment:
The assessee challenged the jurisdiction of the Assessing Officer (AO) to reopen the assessment. The CIT (Appeals) upheld the AO's jurisdiction to reopen the assessment under Section 148 of the Income Tax Act, 1961, based on information received from the Investigation Wing indicating that the assessee was involved in accommodation entries for commission.

2. Addition of Rs.2,20,00,000/- as Unexplained Share Application Money:
The AO added Rs.2,20,00,000/- to the assessee's income as unexplained share application money, citing the assessee's failure to prove the genuineness of the share subscription, the creditworthiness, and the identity of the shareholders. The AO noted that the share application money was received through banker's cheques issued immediately after credits in the accounts of the subscriber-companies, with minimal balances before and after the transactions. The CIT (Appeals) deleted this addition, stating that the assessee provided sufficient documentation, including share application forms, board resolutions, bank statements, and income tax returns of the subscriber-companies. The Tribunal upheld the deletion but remitted the issue back to the AO to verify the source of money and allow cross-examination of the persons who allegedly provided accommodation entries.

3. Addition of Rs.4,40,000/- as Commission Paid for Obtaining Accommodation Entries:
The AO added Rs.4,40,000/- as commission paid by the assessee to obtain accommodation entries, calculated at 2% of Rs.2,20,00,000/-. The CIT (Appeals) deleted this addition, and the Tribunal upheld the deletion, directing the AO to verify the source of money and allow cross-examination.

4. Burden of Proof under Section 68 of the Income Tax Act, 1961:
The Tribunal's view that the AO must establish that the share monies emanated from the assessee's coffers was rejected by the High Court. The Court cited the Supreme Court's rulings in A. Govindarajulu Mudaliar v. CIT and CIT v. Devi Prasad Vishwanath Prasad, stating that Section 68 does not cast such a burden on the AO. The AO is required to verify the identity and creditworthiness of the subscribers and the genuineness of the transactions. If the explanation provided by the assessee is not satisfactory, the AO can make the addition without proving that the monies came from the assessee's coffers.

Conclusion:
The High Court answered the substantial question of law in favor of the Revenue, remitting the matter back to the AO for fresh consideration with modified directions. The AO must allow cross-examination of the persons who provided statements to the Investigation Wing and verify the source of the money. However, the AO is not required to prove that the monies emanated from the assessee's coffers. The appeal was disposed of with no order as to costs.

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